Homer Electric pulls plug on Southern Intertie project

The Homer Electric Association board recently decided to opt out of the Southern Intertie project, a project that, at last estimate, would have cost up to $119 million to build a power line extension from Point Woronzoff, under the Turnagain Arm, to Nikiski.

Six utilities in the Southcentral region are members of the Intertie Participants Group, the utilities who would benefit and share the cost of construction, operations and maintenance of the intertie project.

Homer was considered by some to be the utility with the most to gain if the project was built. According to a study performed by Chugach Electric which was initially kept under wraps, Homer would have shouldered about 12 percent of the project cost while reaping about 20 percent of the project benefits.

HEA has not officially pulled its support from the project -- a move that must be made in writing by July 15. Matanuska Electric Association spokesman Mike Pauley said the arrangement is "you're in until you opt out," so any utility who does not indicate by that date is obliged to split the cost of construction of the project with the other utilities who are taking part. MEA officials have not been supportive of the project in the past, as they believe it makes little economic sense for MEA members.

According to the Chugach study, MEA would shoulder about 14 percent of the cost while reaping only about 5 percent of the benefits of the project.

Pauley said the project would be even less economically feasible if HEA pulls out.

"Essentially, there's a direct financial impact. If Homer does not participate, their share gets distributed [to the other utilities]," Pauley said. "It becomes progressively more and more burdensome to pay for."

The project has been discussed for at least two decades. In 1982, Southern Engineering Company performed a long-term planning study that recommended establishing a second electrical transmission line from Anchorage to Kenai. Two more studies reached the same conclusion in 1983 and a 1989 study declared the project economically viable.

According to information from MEA, the most important benefits of the project would be that it would improve transmission reliability and give electric cooperatives the ability to use hydroelectric power from Bradley Lake, a state-owned hydroelectric plant, instead of using electricity from higher-cost power generators.

Some IPG-member utilities lobbied the legislature this year, asking that $30 million that had been set aside in the Alaska Railbelt Energy Fund to fund the project be made available, along with about $50 million in additional funds.

According to Homer Electric Association board president and Soldotna Mayor David Carey, the extra $50 million was money that utilities had assumed would be available for their use.

Several years ago, money that had been set aside for construction of the Knik Arm Crossing was molded into funds for Alaska utilities. About half of it, Carey said, went into rural development of utilities.

The remaining half was split between two intertie projects -- one to build connections from Southcentral Alaska to the Interior and the second to build connections southward.

The northern intertie is currently under construction, but the money set aside for the southern intertie has been sitting, generating interest revenue, for several years. That interest, about $27 million, Carey said, was considered to be part of the southern intertie project funding by utilities.

"We had a non-written understanding that that interest would go to the project," Carey said. But this spring, when Gov. Murkowski went through the budget and realigned spending patterns, that money was used to offset lost funds from cuts.

Add to that about $24 million in leftover funds that were unallocated -- money the utilities also expected would be tacked onto the intertie project, and the expected contribution from the state rose quickly from about $30 million to about $80 million. But that money, too, was taken, Carey said.

"We were faced with $51 1/2 million from what we saw of the project is now gone," Carey said.

Carey said the board, after reevaluating their contribution, decided against moving forward on the project.

"Our 12 percent of what we saw of that new amount, from $9 to $11 million, would have to be funded out of our cooperative's money," Carey said. "We saw costs that were no longer sufficient reason for our participation."

Additionally, Carey said, the cooperative did not need the intertie project for added electricity, as was estimated in feasibility studies of the project performed in the 1980s.

"In 1985, we had very different dynamics in terms of growth," Carey said. "At that time, we were almost totally dependent on Chugach Electric for our power."

Since that time, Carey said, they have a share of the power generated from a state-owned hydroelectric plant at Bradley Lake, and have a significant source of power from a Nikiski co-generation plant owned by Unocal.

On top of that, Carey explained, they are locked into a 30-year contract mandated by the Alaska Public Offices Commission (now the Alaska Regulatory Commission) to purchase 73 megawatts of power from Chugach Electric Association each month. At the time the contract was created, APUC speculated that HEA would need more than the 73 megawatts each month, and reserving that amount would be planning for the future.

But Carey said the area did not grow and develop as fast as speculated.

"We have only on two days, ever used more power than what we buy," Carey said. "Every single month we pay for 73 megawatts of power, yet we almost never use it."

Those changes have also caused the co-op's need for the Southern Intertie project to wane.

"The southern intertie project is no longer nearly as beneficial to us," Carey said.

Carey said he hopes the utilities involved in the project will work together to come up with mutually supportive lists of projects that would better use the money, such as replacement of batteries, upgrading lines and replacing the damaged poles and lines between the Kenai Peninsula and Anchorage. If not, he said, some legal opinions say the state could take back the Railbelt money.

"The funds that were designated for the Southern Intertie now need to be used ...," Carey said. "There still is a major issue for all of us to be involved in this ... I believe if we don't come up with a clear set of projects, we all can use, we will lose the rest of our money."